Northern Drilling : Consolidated Financial Statements 2022

CONSOLIDATED FINANCIAL STATEMENTS

NORTHERN DRILLING LTD.

YEAR ENDED DECEMBER 31, 2022

Index to the Consolidated Financial Statements of Northern Drilling Ltd.
	Page
Board of Directors' Report	1-6
Responsibility Statement	7
Consolidated Statements of Operations for the years ended December 31, 2022 and 2021	8
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021	9
Consolidated Balance Sheets as of December 31, 2022 and 2021	10
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021	11
Consolidated Statements of Changes in Equity for the years ended December 31, 2022 and 2021	12
Notes to the Consolidated Financial Statements	13-19
Independent Auditor's Report	20 to 22

Northern Drilling Ltd.

Board of Directors' Report

Key Information

Unless otherwise indicated, the terms "Northern Drilling", "we", "us", "our", the "Company" and the "Group" refer to Northern Drilling Ltd., and its consolidated subsidiaries.

Unless otherwise indicated, all references to "U.S. dollars", "USD", "dollars", "US$" and "$" in this Annual Report are to the lawful currency of the United States of America, references to "Norwegian Kroner", and "NOK" are to the lawful currency of Norway.

Company Background

Northern Drilling Ltd. was incorporated under the laws of Bermuda on March 2, 2017. The Company was set up to be an international offshore drilling contractor to the oil and gas industry, with the ambition of acquiring and operating modern offshore drilling vessels.

As of the date of this report, the Company does not own any drilling vessels due to the termination of the Company's three construction resale contracts in 2019 and 2021. The yard constructing the vessels, Daewoo Shipbuilding & Marine Engineering Co. Ltd. ("DSME"), has disputed the terminations of all three resale contracts. Arbitration proceedings are ongoing to determine the disputed claims. The Company believes that the resolution of the claims put forward in the arbitration proceedings will have a favorable impact on its financial position and has therefore recorded claim receivables at the value of pre-delivery instalments paid on three terminated rig construction contracts.

In October 2017, the Company's shares were listed on Oslo Axess under the trading symbol "NODL". In July 2018, the Company's shares were transferred from this listing to the Oslo Stock Exchange and continued to trade under the same symbol.

Our registered office is at Par-La-Ville Place, 14 Par-La-Ville Road, Hamilton, Bermuda. Our website is www.northerndrillingltd.com.

Operational Activity

1. West Aquila

On August 17, 2021, the resale contract for the rig known as the West Aquila was terminated by a subsidiary of Northern Drilling Ltd. (West Aquila Inc.) due to delay of delivery as well as repudiatory breach of contract. The contractual delivery date for the West Aquila was January 31, 2021, and DSME failed to deliver the rig on this date or at any time thereafter. DSME has disputed the Company's claims and commenced arbitration proceedings in London pursuant to the resale contract, claiming damages and that DSME is entitled to retain the pre-delivery instalment of $90.0 million and to apply it against its losses as a result of the termination, which have yet to fully crystalize. West Aquila Inc. is defending DSME's claim in full and seeks awards for their claim of the $90.0 million instalment previously paid plus interest and damages, in accordance with the resale contract and industry standard procedures. The dispute is to be determined at a scheduled hearing in May 2023.

1. West Libra

On October 16, 2021, the resale contract for the rig known as West Libra was terminated by a subsidiary of Northern Drilling Ltd. (West Libra Inc.). The contractual delivery date for the West Libra was March 31, 2021, and DSME failed to deliver the rig on this date or at any time thereafter. DSME has disputed this claim and commenced arbitration proceedings in London pursuant to the resale contract, claiming damages and that DSME is entitled to retain the pre- delivery instalment of $90.0 million and to apply it against its losses as a result of the termination, which have yet to fully crystalize. West Libra Inc. is defending DSME's claims in full and seeks awards for their claim of the $90.0 million

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instalment previously paid plus interest and damages, in accordance with the resale contract and industry standard procedures. The dispute is to be determined at a scheduled hearing in May 2023.

1. West Cobalt

In 2019, a subsidiary of Northern Drilling (West Cobalt Inc.) rescinded the resale contract for the purchase of the rig known as the West Cobalt. On April 17, 2022, West Cobalt Inc. commenced arbitration proceedings against DSME for claims relating to DSME's misrepresentations and West Cobalt Inc.'s recission of the resale contract. Before West Cobalt Inc. could serve its claim submissions by the agreed deadline, DSME served its own claim submissions and thereby DSME became the claimant in the arbitration and claims its alleged shortfall upon resale of the rig. West Cobalt Inc. served its defense and counterclaim submissions in September 2022 and claimed $49.2 million in respect of the first and second instalments already paid to DSME plus interest and damages. The hearing date to determine the dispute has yet to be fixed.

Following the termination of the said resale contracts, the Company has no rigs under construction.

Corporate Social Responsibility

Ensuring high standards environmentally, ethically, and socially are key values of the Company for which the Group has established policies, procedures and guidelines. The sections below of 'The Working and Social Environment', 'Employment Equality', 'Impact on the External Environment' and 'Human Rights, Anti-corruption and Anti-bribery' more specifically detail how the Company operates in accordance with these values.

The Working and Social Environment

At the end of 2022, the Company had one employee. The Company's CEO and other management are employed by a subsidiary of a related party, Northern Ocean Ltd. ("NOL"). An allocation of the costs of these services is invoiced to Northern Drilling. There have not been any serious injuries or accidents in the current year and total absence due to sickness has been minimal. The Company's Board of Directors currently consists of four men.

Employment Equality

Northern Drilling is an equal opportunities employer and does not discriminate against any employee or job applicant because of race, color, religion, national origin, sex, age or physical disability. The Company's recruitment policy is based on these values. The Company has in 2022 been, and remains, committed to base any decision with respect to any person on the Company's needs and the performance and potential of the person, and not on any other criterion.

Impact on the External Environment

The Company's activities are currently limited to arbitrations proceedings regarding the termination of three resale contracts, which have minimal impact on the external environment.

Human Rights, Anti-corruption and Anti-bribery

The Company's activities are currently limited to arbitrations proceedings regarding the termination of three resale contracts, which the Company considers to be low risk regarding human rights, corruption and bribery. The Company however continues to have strict policies, procedures and guidelines to mitigate potential risks.

Going Concern Assumption

These consolidated financial statements are prepared under the going concern assumption. The Company is dependent on loans and/or equity issuances and/or successful outcomes in its disputes with DSME to finance its ongoing operations, which raises substantial doubt about the Company's ability to continue as a going concern. The Company continues to evaluate all alternatives available. There is no assurance that the Company will be able to execute its strategy.

Risk Assessment

The Company's activities are subject to significant risks and uncertainties that can have an adverse effect on the Company's business, financial condition, results of operations and cash flow. Such risks and uncertainties include, among others, failure to acquire future assets, developing into an operating business, securing additional funding and achieving a satisfactory outcome in the disputes with DSME. In addition, the war in Ukraine and public health threats, such as the Coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time

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occurred in various parts of the world in which we operate could adversely impact our operations as well as the operations of our customers. Further, the success and growth of the Company's business is dependent on the level of activity in the offshore oil and gas industry generally and the drilling industry specifically. The industry is highly competitive and is significantly impacted by the price of oil, which can be very volatile.

Prospects for the Future

The Company continues to have a positive outlook for the offshore deepwater market in 2023 and beyond. Following the termination of the newbuilding program, the near term primary focus of the Company will continue to be pursuing a favorable outcome of the current disputes with DMSE. Once the disputes are resolved, the Company will revisit its strategic objectives.

Corporate Governance Report

Section 1 "Implementation and reporting on corporate governance": As a company incorporated in Bermuda, the Company is subject to Bermuda laws and regulations. Additionally, as a consequence of being listed on the Oslo Stock Exchange, the Company must comply with section 3-3b and 3-3c of the Norwegian Accounting Act and certain aspects of Norwegian securities law and is also obligated to adhere to the Norwegian Code of Practice for Corporate Governance, or the Code of Practice, on a "comply or explain" basis. Further, the Company has in place a Memorandum of Association and Bye-Laws, which set forth certain governance provisions. The Norwegian Accounting Act is found on www.lovdata.no and the Code of Practice is found on www.nues.no.

The Company's corporate governance principles are based on the Code of Practice. However, since the Company is governed by Bermuda laws and regulations, and given the nature of the Group's activities, certain practices are applied which deviate from some of the recommendations of the Code of Practice.

In the following sections, the Company's corporate governance policies and procedures will be explained, with reference to the principles of corporate governance as set out in the sections identified in the Code of Practice. This summary does not purport to be complete and is qualified in its entirety by the Company's Memorandum of Association and Bye-Laws, Bermuda and Norwegian law.

Section 2 "Business": The Company is an international offshore drilling contractor to the oil and gas industry, with the ambition of acquiring and operating modern offshore drilling assets. The Company has now targeted the benign and ultra- deep water sector and will continue to dedicate resources for further growth within these segments. The Company has an opportunistic growth strategy and will carefully review opportunities for assets that can operate in various water depths.

In accordance with normal practice for Bermuda companies, the Company's Bye-Laws do not include a specific description of its business. According to the Memorandum of Association, the objects for which the Company was formed and incorporated are unrestricted. As a Bermuda incorporated company, the Company has chosen to establish the constitutional framework in compliance with the normal practice of Bermuda and accordingly deviate from section 2 of the Code of Practice.

Section 3 "Equity and dividends": The Company's equity capital is at a level appropriate for its objectives, strategy, and risk profile. In accordance with Bermuda law, the Board of Directors is authorized to permit its own shares to be held as treasury shares, and to issue any un-issued shares within the limits of the authorized share capital without further shareholder approval. These authorities are neither limited to specific purposes nor to a specific period as recommended in section 3 of the Code of Practice. The Board of Directors will propose to the shareholders that they consider and, if necessary, resolve to increase the authorized capital of the Company that will allow the Board of Directors some flexibility to increase the number of issued shares without further shareholder approval. Any increase of the authorized capital is, however, subject to approval by the shareholders by simple majority of the votes cast. While the Company aims at providing competitive long-term return on the investments of its shareholders, it does not currently have a formal dividend policy.

Section 4 "Equal treatment of shareholders and transaction with close associates": Neither the Company's Bye-Laws nor Bermuda company laws include regulation of pre-emptive rights for shareholders in connection with share capital increases. The Bye-Laws provide for the Board of Directors in its sole discretion to direct a share issue to existing

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